Estimation of Drivers of Public Education Expenditure: Baumol’s Effect Revisited

July 28, 2015

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Format: Chicago

Manabu Nose. Estimation of Drivers of Public Education Expenditure: Baumol’s Effect Revisited, (USA: International Monetary Fund, 2015) accessed September 18, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper analyzes drivers of rising per-pupil public education spending, including Baumol’s “cost disease” effect. Higher wages paid to teachers contributed significantly to the increase in per-pupil spending over the past decades. Empirical analyses using a large dataset of advanced and developing economies show that the contribution of Baumol’s effect was much smaller than impled by theory. Rather, the spending inccrease reflects rising wage premiums paid for teachers in excess of market wages, especially in middle-income countries. The strong wage premium effect suggests that institutional characteristics that govern teachers’ wage setting are key determinants of education expenditure.

Subject: Capital spending, Education, Education spending, Expenditure, Labor, Wages

Keywords: Baumol’s effect, Capital spending, Education spending, Growth assumption, Institutions, Premium effect, Public education, Public education expenditure, Sub-Saharan Africa, Teacher-pupil ratio, Wage premium, Wages, WP

Publication Details

Pages:

36
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2015/178
Stock No:

WPIEA2015178
ISBN:

9781513517384
ISSN:

1018-5941

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